Ruling: Lilly Broke Research Contract
By Jeff Swiatek, The Indianapolis Star
Jan. 7–Eli Lilly and Co. broke the terms of its contract with a research partner by setting up a secret development team using the partner’s technology for another project behind its back, a federal judge ruled Friday.
The ruling gives tiny Emisphere Technologies, of Tarrytown, N.Y., a key victory in a more than two-year-old legal fight with pharmaceutical giant Lilly.
In a 60-page decision that criticized the drug maker for “shifts and internal contradictions” in its explanations, U.S. District Court Judge David Hamilton said Emisphere was free to terminate its research agreement with Indianapolis-based Lilly in 2004.
“Lilly deliberately chose a course that was too aggressive, one that tried to sail too close to the wind,” the judge said in ruling that Lilly breached the contract it had with Emisphere.
No damages were awarded.
Emisphere spokesman Dan Budwick said company officials are “very pleased with the decision” and will decide later whether to ask the judge to award damages.
Emisphere still has a patent infringement claim pending against Lilly.
Lilly was working with Emisphere to develop a pill form of Lilly’s injectable drug Forteo, used to treat osteoporosis. Emisphere has developed novel compounds that protect medicines from being destroyed by stomach acids. That makes them useful for converting into pill form drugs that now can be given directly only by injection.
It’s unclear how significant a setback the ruling is for Lilly, which was banking on the Emisphere technology to increase the patient acceptance of Forteo, one of its promising new drugs.
During trial last year in the case, Emisphere lawyers presented evidence that showed Lilly set up a secret team to test Emisphere compounds with another Lilly injectable drug. That wasn’t allowed under the research contract.
Emisphere found out about the secret research only after Lilly filed an international patent that revealed its use of eight Emi-sphere compounds, according to trial testimony cited by the judge.
At the time the secret team was active, Lilly was trying to broaden the terms of its working relationship with Emisphere. But those negotiations broke off.
The judge said it was clear from trial evidence that Lilly tried to hid its secret work with Emisphere’s compounds.
At one point, he said, an Emisphere official began making inquiries of Lilly scientist Amin Khan, who headed the secret research team, about his intentions for broadening the research deal, and “Dr. Kahn got angry and had no answer.”
Lilly sued Emisphere after the smaller company served notice to Lilly that it was in breach of the contract. In a counterclaim, Emisphere alleged patent infringement.
In late 2004, Emisphere agreed to work on a similar research project with a new partner, Novartis, a major Lilly rival.
The judge said he didn’t buy Lilly’s argument that it will be harmed if Emisphere takes its technology to a competitor, because “that harm is the direct consequence of Lilly’s decision to pursue its own secret research on Emisphere’s carriers in violation of the agreements.”
Lilly spokesman Philip Belt couldn’t be reached for comment.
Lilly relies heavily on dozens of research partners like Emisphere to find new drugs and drug development technologies.
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